Court Interprets China’s PIPL As Containing Exceptions for Discovery in Cryptocurrency Class Action 

By Jessica Priselac

Duane Morris Takeaway: While very few courts have been faced with interpreting China’s Personal Information Protection Law (“PIPL”), two judges have now held that there is no conflict between China’s PIPL and U.S. law with respect to a litigant’s compliance with discovery obligations in the U.S.  Although these two initial decisions are not binding on other courts, the dearth of case law on this issue makes it likely that both decisions will influence future interpretations of PIPL in U.S. litigation.

China’s Personal Information Protection Law (“PIPL”) came into effect on November 1, 2021, and is the country’s first comprehensive statute regulating the protection of personal information.  While the legislation has generated significant attention from the media and companies seeking to ensure compliance with the law in their day to day operations, the statute also has important implications for discovery in U.S. litigation.  A recent decision in Owen v. Elastos Foundation by Magistrate Judge Barbara Moses of the Southern District of New York provides insight into how U.S. courts may interpret PIPL in the context of discovery disputes.

Owen is a putative class action in which plaintiffs claim that defendant Elastos Foundation failed to register the cryptocurrency it created and sold in the United States.  Although defendants initially agreed to collect and produce data from 19 custodians, defendants later informed plaintiffs that PIPL prevented the collection and production of data belonging to certain custodians because it contained the personal information of individuals located in China.  Plaintiffs then filed a motion to compel the production of documents that had not been produced by defendants on the basis of PIPL.

As outlined by the court, PIPL prohibits accessing or handling the personal information of individuals located in China.  Exceptions to this prohibition include obtaining the individual’s consent, as well as certain other exceptions outlined in Article 13 of the statute.  In support of their respective positions, the parties submitted competing expert reports as to the correct interpretation of PIPL, including whether any of the statute’s exceptions applied in the context of the parties’ discovery dispute.

With respect to the first category of data at issue, which was located outside of China but contained personal information related to individuals located in China, Judge Moses held that PIPL did not apply.  In reaching this conclusion, she interpreted the statute as applying to data located outside of China only under certain circumstances set forth in Article 3 of PIPL, such as when data is being handled or processed to track or analyze the behavior of persons located in China for marketing purposes.  She held that none of those enumerated circumstances applied in the discovery context, and compelled the production of data located outside of China.

As to the second category of data, all of which was stored inside of China, Judge Moses turned to the text of the statute, and held that processing and producing data located in China for the purpose of complying with U.S. law does not conflict with PIPL.  Specifically, she relied on Sections 3 and 7 of Article 13 of PIPL, which permit the processing of personal information if “the processing is necessary for the performance of statutory duties or obligations,” or under “other circumstances provided bylaws or administrative regulations.”  PIPL Art. 13, §§ 3, 7.  While defendants argued that these exceptions only applied to compliance with Chinese laws, Judge Moses rejected defendants’ argument and emphasized that the text of the statute did not support defendants’ interpretation.

In relying on exceptions to PIPL that are grounded in compliance with other laws and regulations, Judge Moses cited another opinion interpreting PIPL, Cadence Design Systems, Inc. v. Syntronic AB.  In that case, Chief Magistrate Judge Joseph C. Spero of the Northern District of California similarly relied on Article 13 of PIPL in holding that there was no conflict between U.S. law and PIPL as it pertained to compliance with one of his discovery orders.

As two of the first opinions interpreting PIPL, the opinion of Judge Moses in Owen and that of Judge Spero in Cadence Systems are likely to influence future decisions regarding the application of PIPL in the context of discovery.  Accordingly, those who are inclined to assert PIPL in opposition to a motion to compel must be prepared to grapple with the question of whether it presents a conflict with U.S. law.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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